Mack Crowded By Competitors Analysis

January 19, 1986|by RAY HOLTON, The Morning Call

The heavy, over-the-road truck industry, in which Mack Trucks is one of seven manufacturers, is showing symptoms similar to those that have devastated the nation's steel industry in the past four years.

Too many competitors are going after a shrinking market for new big trucks in theClass 8 size (weighing over 33,000 pounds), industry experts contend. The industry is headed for a shake-out similar to the one that is still reverberating through the nation's steel mills. Many analysts and industry executives predict plant closings and dwindling employment.

And a new wave of durable imported trucks from Japan, Brazil and Europe in the Class 7 market - 26,000 to 33,000 pounds - is expected to make inroads on the Class 8 market, threatening even lower sales of the behemoths of the highway.

Mack Trucks is one of the top three domestic makers of the Class 8 trucks, and it is the only company that still produces its own engines. With 18 percent of the market for the big trucks, Mack shares second place with Paccar (Peterbilt and Kenworth). First place belongs to Navistar (recently renamed from International Harvester), which has a 22 percent market share.

But there are four other competitors crowding the field: Freightliner (13 percent), Ford Motor Co. and General Motors Corp. (10 percent each) and Volvo- White (7 percent)

All of these companies have the capacity to build more than 230,000 Class 8 trucks annually, about twice the estimated 125,000-130,000 trucks that were sold in 1985.

The overcapacity is the biggest headache for the industry, and analysts believe that one or more of the manufacturers will begin closing facilities this year or pull out of the business altogether.

In 1985, seven U.S. truck makers operated at 65 percent of capacity, and next year the rate will drop to 63 percent, according to Data Resources, Cambridge, Mass.

Ward's Automotive magazine said the heavy truck (class 8) replacement market is expected to be about 120,000 vehicles in 1986, still about half of the industry's capacity.

"The squeeze lies ahead in class 8," a GM spokesman told Ward's. "A shake-out in the industry is due."

Another industry publication, Fleet Owner, said a survey of truck owners indicated, "Buying levels in Class 8 are projected to drop 9 to 16 percent this year, dipping to between 110,000 to 120,000 retail units from an estimated 131,500 units in 1985."

Mack's balance sheet is strong. It has more than $1.2 billion in assets and long-term debt around $150 million. But the company's income statement contains rising operating expenses that could force the company to borrow money to meet current obligations. That's like a homeowner borrowing money to pay the electric bills or to put food on the table.

Since October, when Mack announced it would close the 60-year-old plant 5C in Allentown, Chairman John B. Curcio has been stressing the need for the company to cut its operating costs. He had been seeking a $52-million cut in operating expenses to justify building a new replacement plant, capable of producing 70 trucks a day, in the Lehigh Valley.

By Wednesday, he essentially cut that demand in half. It was disclosed the company had dropped its demand for a wage-and-benefit cut of $3.85 an hour to $2.04 an hour, or less than 10 percent of Mack's average labor costs of $23 an hour.

During negotiations, Mack argued that three major competitors - Paccar, Volvo-White and Freightliner - built small, 35-truck-a-day plants in the South. Two of the plants are non-union, with labor costs averaging about $18 an hour, compared with costs under the United Auto Workers master agreement around $23 an hour. The third plant, Volvo-White in New River Valley, Va., has a contract with a UAW local, but even its labor costs are less than Mack's because the local is not under the international UAW master agreement.

Curcio has contended that the plants in the South have fewer than 10 job classifications onthe shop floor, whereas Mack's contract with the UAW takes up four paperback volumes defining more than 100 job classifications.

The greater the number of job classifications, the less flexibility an employer has with its workers. The classifications act as barriers to cost- efficient production, industrial manufacturers have repeatedly contended in recent negotiations.

The union's chief negotiator, however, William Casstevens, vice president of the UAW in Detroit, said that other competitors had not sought rollbacks of wages and benefits contained in the master agreement. The wages and benefits of all the big truck makers are essentially the same under the master agreement.

"Wage-and-benefits cuts for current employees is not going to get us (to an agreement)," Casstevens told a press conference Thursday. "We made it clear from day one that we would not accept pay cuts for current employees. None of their competitors is asking for that."